Statement on Personal Tax from Parizad Sirwalla, Partner and Head of Global Mobility Services – Tax , KPMG in India

Over all reaction from Personal Tax perspective

The key pillars on which Budget 2016 focussed from a tax perspective are relief to small tax payers, moving to a pension based society, thrust on affordable housing, simplification of tax compliance processes and increased use of technology.

Overall the tax bill for high income earners has increased (super-rich). Additional revenue collection measures are in the form of increase in surcharge for higher income group, tax on large dividend earners, Voluntary Disclosure Schemes (VDIS) for undisclosed income etc.

Retirals

There is a welcome clarity on taxability of only 40 per cent of National Pension System (NPS) withdrawals and super annuation schemes. Currently the entire withdrawals were taxable. However, the tax on 60 per cent of withdrawals from Employee Provident Fund (EPFO) in respect of contributions made from 1 April 2016 (in respect of employees with salary above specified threshold) is probably an effort to bring taxation of various retiral schemes (e.g. NPS, super annuation and Employee Pension Scheme) on par.

The increase in tax exemption for employer contribution to Rs. 1,50,000 per annum on super annuation scheme from the existing Rs. 1,00,000 per annum is again a good move. However the employer contributions to Provident fund which were currently exempt upto a specified percentage of salary will now be taxable over and above Rs. 1,50,000 per annum. It seems that the tax provisions on all retirement products have been sought to be made similar.

Job Creation

Finance Minister has provided incentive to employers (by funding employer pension contributions for new low wage earners and deductions for creating new jobs in non-manufacturing sectors as well).

Tax rates/ slabs etc.

There is no change to basic slabs or rates of tax. Small tax payers have been provided a relief by enhancement of tax rebate to Rs. 5,000 from Rs. 2,000 (savings of Rs. 3,090 p.a.)

Taxpayers in the Rs. 1,00,00,000 per annum plus income bracket to pay increased tax on account of enhancement of surcharge to 15 per cent from the existing 12 per cent. Consequently the highest maximum marginal rate enhances to 35.54 per cent from current rate of 34.62 per cent. This translates into an increased tax liability for these super rich individuals to the tune of approx. Rs. 96,500 p.a.

There will also be additional tax liability @ 10 per cent on individuals receiving dividends in excess of Rs. 10,00,000 per annum.

Voluntary Income Disclosure Scheme (VDIS)

With the thrust on bringing undisclosed income in the tax net, the Finance Minister has also introduced a VDIS scheme for taxpayers to pay 45 per cent (tax of 30 per cent plus 7.5 percent of interest and plus 7.5 per cent penalty).

Enhancement of deduction available under 80C of the Income Tax Act, 1961

Apparently there is no change in the much awaited crowded deduction under Section 80C.

Announcement made V/s Easwaran Committee recommendations

Many recommendations of the Committee have been accepted including rationalization of TDS rates and introducing of presumptive taxation for professional taxpayers.

TDS rates

Broadly seems that all changes are in line with Easwar Committee recommendations however one will need to read the fine print to watch out for any additional impact.

Housing

Individuals who stay in rented houses and don’t have any component of house rent allowance in their salaries, can have some respite as the rent deduction has been enhanced from Rs. 24,000 per annum to Rs. 60,000 per annum. This will lead to tax savings in the range from Rs. 3,708 per annum to Rs. 12,793 per annum.

New home buyers to get additional deduction of interest of Rs. 50,000 per annum if the house cost is less than Rs. 50,00,000 and the home loan is sanctioned in the Financial Year is not exceeding Rs. 35,00,000.

Standard Deductions

No changes.

Medical Insurance

No changes.

Service tax

Overall increase of 0.5 per cent in the rate of service tax from 1 June 2016.